A Look at Arbitration in the Age of #MeToo

The Legal Intelligencer

As the #MeToo movement gained momentum so, too, have efforts by individuals claiming sexual harassment to bring legal action against their alleged abusers and their employers. But many of the efforts to seek redress through the courts for sexual harassment in the workplace have been derailed by broadly worded mandatory arbitration clauses in employment contracts.  Many employers require their employees to sign agreements that require arbitration of at least some disputes arising out of the scope of employment, and those clauses have been invoked to preclude individuals from pursuing harassment claims in court. The scope, applicability, and legality of such clauses have embroiled employers of alleged abusers and plaintiffs in complex litigation over the initial question of the forum in which such claims may proceed. At the same time, the use of mandatory arbitration to address the difficult issues of sexual harassment has come under increased scrutiny. Indeed, in the wake of the #MeToo movement, many employers decided to eliminate mandatory arbitration provisions from their employment contracts. See ”Google Ends Forced Arbitration for All Employee Disputes,” N.Y. Times (Feb. 21, 2019)

Concluding that mandatory arbitration of discrimination claims involving rights protected by federal statute and constitutional law is against public policy, several states enacted legislation prohibiting mandatory arbitration of sexual harassment or discrimination claims. In 2018, Maryland enacted legislation providing that “except as prohibited by federal law, a provision in an employment contract, policy, or agreement that waives any substantive or procedural right or remedy to a claim that accrues in the future of sexual harassment or retaliation for reporting or asserting a right or remedy based on sexual harassment is null and void as being against the public policy of the state.” See Md. Lab. & Empl. Code Section 3-715(a) (2018). In 2018, the New York State Legislature enacted C.P.L.R. Section 7515, which declared that, except where inconsistent with federal law, mandatory arbitration provisions covering sexual harassment claims were null and void. New York amended that law in 2019 to expand its terms to cover all employment discrimination claims. In 2019, New Jersey enacted a law providing that any provision in an employment contract that “waives any substantive or procedural right or remedy relating to a claim of discrimination, retaliation, or harassment shall be deemed against public policy and unenforceable.”

Several courts have found that these laws are prohibited by the terms of the 1926 Federal Arbitration Act (FAA), 9 U.S.C. Section 1 et seq. As the U.S. Supreme Court has repeatedly found, the FAA evinces a strong federal policy favoring arbitration. The Supreme Court has repeatedly struck down efforts by states to restrict arbitration as violative of the FAA. In AT&T Mobility v. Concepcion, 563 U.S. 333 (2011), the Supreme Court found that the FAA preempted a California judicial rule making certain class arbitration waivers in consumer contracts unconscionable.  More recently, in Epic Systems v. Lewis, 138 S. Ct. 1612 (2018), the Supreme Court upheld the validity of employment agreements that require workers to arbitrate and waive their rights to bring class or collective actions, concluding that that employee rights to pursue collective action under the National Labor Relations Act do not override the FAA’s broad mandate to enforce arbitration agreements.

In adjudicating challenges to efforts to invoke arbitration clauses in employment agreements to address claims of sexual harassment, several courts have found that state statutes prohibiting arbitration of discrimination or harassment complaints are preempted by the FAA. (We note that the first inquiry is the existence and terms of the arbitration clause at issue.)

Multiple different courts have found that New York’s C.P.L.R. Section 7515 is preempted by the FAA. In Lee v. Engel Burman Grande Care at Jericho, (E.D.N.Y. Aug. 23, 2021), the court granted a motion to compel arbitration of an action filed by an event planner at an assisted living facility claiming sexual harassment and discrimination. The court noted that the FAA “‘establishes a liberal federal policy favoring arbitration agreements’” and found that the plaintiff’s attempt to avoid arbitration based on the New York statute lacked merit because, by its own terms, Section 7515 does not apply where its application would be “inconsistent with federal law” and, “to the extent that Section 7515 does not itself carve out agreements that are subject to the FAA, Section 7515 ‘is displaced by the FAA’” under Concepcion. Similarly, in Gilbert v. Indeed, 513 F. Supp. 3d 374, 397 (S.D.N.Y. 2021) the court concluded that applying applicable Supreme Court precedent, the conclusion must be that the FAA, “withdrew from the states the power to adopt employment laws and to exempt from arbitration the resolution of disputes based on those laws.” See also Latif v. Morgan Stanley & Co., (S.D.N.Y. June 26, 2019) (finding that application of Section 7515 to invalidate parties’ agreement to arbitrate would be inconsistent with the FAA). Courts have recognized the complexity of this outcome: in Gilbert, for example, the court noted the gravity of the conclusion and, citing Justice Ruth Bader Ginsburg’s dissenting opinion in Lamps Plus v. Varela, 139 S. Ct. 1407, 1422 (2019) (Ginsberg, J. dissenting) the incongruity of allowing “the very forces that had practiced discrimination to contract away the right to enforce civil rights in the courts.” Similarly, in a somewhat different context, in New Jersey Civil Justice Institute v. Grewal, (D.N.J. Mar. 25, 2021), the federal district court in New Jersey concluded that Section 12.7 of the New Jersey statute noted above, as applied to arbitration agreements governed by the FAA, is preempted. The court reasoned that while the provision did not mention arbitration by name, its effect was to single out arbitration agreements for disfavored treatment and thus contravened the FAA.

In one of the cases that has reached the appellate level, the U.S. Court of Appeals for the Ninth Circuit has taken a somewhat different view. In U.S. Chamber of Commerce v. Bonta, 13 F.4th 766 (9th Cir. 2021), the court vacated a preliminary injunction against enforcement of a recently enacted provision of the California Labor Code. The provision at issue states that an employer cannot, as a condition of employment, require an employee “to waive any right, forum, or procedure for a violation of any provision of the California Fair Employment and Housing Act … or [the California Labor Code], including the right to file and pursue a civil action …” Cal. Lab. Code Section 432.6. The provision expressly states that “nothing in this section is intended to invalidate a written arbitration agreement that is otherwise enforceable under the [FAA].” The Ninth Circuit decision distinguished this provision from those at issue in other cases by focusing on its stated purpose: to ensure that agreements to arbitrate are entered into as a matter of voluntary consent. The court concluded that the California law does not create a contract defense that would invalidate an existing agreement to arbitrate but, rather, is aimed at conduct prior to any such agreement. The court found that nothing in the FAA “grants an employer the right to force arbitration agreements on unwilling employees” and that the only “‘federally protected right’ conferred by the FAA is the right to have consensual agreements to arbitrate enforced according to their terms.” A petition for rehearing is pending.

These cases indicate that addressing mandatory arbitration of sexual harassment claims at the state level is challenging at best. If the Supreme Court concludes that the FAA preempts state legislation prohibiting mandatory arbitration of sexual harassment claims, then it is clear that any action to preclude the use of mandatory arbitration of sexual harassment claims will have to come from the federal level.

To that end, Congress is considering bills that would prohibit pre-dispute arbitration agreements or other waivers relating to sexual harassment or sexual assault disputes. The U.S. Senate Judiciary Committee has reported out for consideration by the full Senate the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021. The proposed legislation would prohibit pre-dispute arbitration agreements or class or collective action waivers relating to sexual harassment or sexual assault disputes. The proposed act specifies that any dispute over its provisions would be determined under federal law and by a court rather than an arbitrator—irrespective of whether the arbitration agreement purports to delegate such determinations to an arbitrator. The House Judiciary Committee similarly approved the House version of the bill, H.R. 4445, on Nov. 17, 2021. The bill is thus ready for full consideration.

A broader proposal, the Forced Arbitration Injustice Repeal Act (or FAIR Act), H.R. 963, was advanced by the House Judiciary Committee on Nov. 3, 2021. The FAIR Act would prohibit pre-dispute arbitration agreements that require arbitration of an employment, consumer, antitrust, or civil rights dispute.

The Build Back Better Act (H.R. 5376) as passed by the House in November included provisions that would amend the National Labor Relations Act to address the impact of the Epic Systems decision by making it unlawful for employers to enter into or enforce any pre-dispute agreement to not pursue class or collective claims arising from employment in any forum of competent jurisdiction. A Senate version, however, does not contain this provision and the status of this legislation is uncertain at this time.

The efforts at the federal level suggest, however, that there is some possibility of legislation that would affect mandatory arbitration clauses in employment contracts. While passage of any of these bills is by no means certain, there is at least some bipartisan support for legislation affecting the use and scope of arbitration provisions in employment agreements.

“A Look at Arbitration in the Age of #MeToo,” by Deborah Greenspan and Fredric M. Brooks was published in The Legal Intelligencer on January 7, 2022.

Reprinted with permission from the January 7, 2022, edition of The Legal Intelligencer © 2022 ALM Properties, Inc. All rights reserved. Further duplication without permission is prohibited.